Reported results reflect impact of foreign exchange headwinds and Green Giant Divestiture
Company posts fifth consecutive quarter of adjusted operating profit margin expansion
General Mills (NYSE: GIS) today reported results for the third quarter of fiscal 2016.
Third Quarter Results Summary
- Net sales
declined 8 percent to $4.0 billion, including a 3 point decline from the Green
Giant divestiture. On a constant-currency basis, net sales declined 4 percent.
- Total segment operating profit totaled $679 million, down 3 percent. In constant currency, total segment operating
profit declined 1 percent.
earnings per share (EPS) totaled 59 cents compared to 56 cents a year ago.
diluted EPS, which excludes certain items affecting comparability of results,
totaled 65 cents in the third quarter of 2016 compared to 70 cents a year
ago. On a constant-currency basis,
adjusted diluted EPS declined 6 percent.
(Please see Note 8 to the Consolidated Financial Statements
below for reconciliation of non-GAAP measures used in this release.)
General Mills Chairman and Chief Executive Officer Ken
Powell said, “Our third-quarter financial results were in line with our
expectations. We reported a decline in
net sales as anticipated, primarily reflecting the Green Giant divestiture and
continued foreign exchange headwinds.
Constant-currency segment operating profit was down modestly, as our
cost savings efforts more than offset the impact of the Green Giant sale. Our disciplined financial management has
enabled us to expand our adjusted operating profit margin for the fifth
consecutive quarter while still investing in Consumer First renovation and innovation news.”
Net sales for the 13 weeks ended Feb. 28, 2016, declined 8 percent to $4.0 billion. Foreign currency exchange reduced net sales growth by 4 percentage points. Pound volume reduced net sales growth by 5 percent, and net price realization and mix contributed 1 point of net sales growth. The divestiture of the Green Giant business in November 2015 reduced net sales growth by 3 points and pound volume by 4 points. Adjusted gross margin, which excludes mark-to-market effects and certain other items affecting comparability, increased 160 basis points due to benefit from cost savings initiatives more than offsetting modest input cost inflation. Selling, general and administrative expenses (SG&A) declined 4 percent, driven by a 6 percent decrease in advertising and media expense and savings from our cost management initiatives (please see Note 4 below for more information on our restructuring actions). Total segment operating profit declined 3 percent to $679 million. On a constant-currency basis, total segment operating profit declined 1 percent. The company posted restructuring and project-related charges totaling $44 million pretax in the third quarter, including $27 million recorded in cost of sales (please see Note 4 below for more information on these charges). Net earnings attributable to General Mills totaled $362 million and diluted EPS totaled 59 cents. Adjusted diluted EPS, which excludes certain items affecting comparability, declined 7 percent to 65 cents.On a constant-currency basis, third-quarter adjusted diluted EPS declined 6 percent.
Nine Month Financial Summary
- Net sales
through the first nine months of fiscal 2016 declined 5 percent to $12.64
billion, including a 1 point decline from acquisitions and divestitures.On a constant-currency basis, net sales
declined 1 percent.
total segment operating profit totaled $2.34 billion, up 5 percent from the
prior year. Constant-currency total
segment operating profit grew 8 percent.
EPS totaled $2.15 compared to $1.67 a year ago.
diluted EPS totaled $2.26 this year to date, up 7 percent versus year-ago
levels. On a constant-currency basis,
adjusted diluted EPS increased 10 percent.
Through the first nine months, General Mills
constant-currency net sales declined 1 percent, reflecting the net impact of
the Green Giant divestiture and the acquisition of the Annie’s business in
October 2014. Total segment operating
profit increased 8 percent and adjusted diluted EPS were up 10 percent in
constant currency. Nine-month adjusted
gross margin expanded by 170 basis points.
U.S. Retail products making particularly strong contributions to
nine-month net sales results include gluten-free Cheerios and Cinnamon Toast
Crunch cereals, Yoplait Greek Whips! yogurt, Nature
Valley grain snacks, Lärabar nutrition bars, Annie’s natural and organic
products, and Totino’s hot snacks. In
the Convenience Stores and Foodservice segment, Pillsbury frozen mini-bagels,
Bugles and Chex Mix salty snacks, and Yoplait Parfait Pro and Simply Go-GURT
yogurt varieties were strong net sales contributors. International products posting strong
nine-month net sales contributions include Häagen-Dazs ice cream and Old El
Paso Mexican products in Europe, Nature Valley snacks in Canada, Fiber One
snacks in Mexico, and Betty Crocker sweet snacks in the Asia/Pacific region.
U.S. Retail Segment Results
Third-quarter net sales for General Mills’ U.S. Retail
segment totaled $2.48 billion, down 7 percent from the prior year. Net price realization and mix contributed 1
point of net sales growth, while lower pound volume reduced sales growth by 8
points. The Green Giant divestiture
reduced U.S. Retail net sales growth by 5 points and pound volume by 6
points. U.S. Retail segment operating
profit of $518 million essentially matched year-ago levels, with benefits from
cost savings initiatives more than offsetting the divestiture impact.
Through nine months, U.S. Retail net sales declined 2
percent to $7.77 billion. Lower pound
volume subtracted 4 points of net sales growth, while net price realization and
mix added 2 points of growth.
Acquisitions and divestitures reduced net sales by 1 point.
Segment operating profit totaled $1.75
billion, 10 percent above last year.
International Segment Results
Third-quarter net sales for General Mills’ consolidated
international businesses declined 13 percent to $1.07 billion due to foreign
currency exchange effects. On a
constant-currency basis, net sales essentially matched year-ago levels.
The Green Giant divestiture reduced
International segment net sales growth by 2 points.
Constant-currency net sales gains of 16 percent
in Latin America and 4 percent in the Asia/Pacific region were offset by
declines of 2 percent in Europe and 14 percent in Canada.
International segment operating profit
declined 35 percent to $70 million. On a
constant-currency basis, segment operating profit was down 24 percent, due to
currency-driven inflation on imported products in certain markets, as well as
the Green Giant divestiture.
Through the first nine months of
fiscal 2016, International segment net sales totaled $3.43 billion, down 12
percent from the prior year. Foreign
currency exchange reduced net sales growth by 14 points. On a constant-currency basis, net sales grew
2 percent, reflecting positive net price realization and mix. The Green Giant divestiture reduced
International segment net sales growth by 1 point.
Nine-month segment operating profit declined
17 percent to $324 million. Constant-currency segment operating profit was 1 percent below year-ago
results that were up 8 percent.
Convenience Stores and Foodservice Segment Results
Third-quarter net sales for the Convenience Stores and
Foodservice segment totaled $454 million, 2 percent below year-ago levels due
to unfavorable net price realization.
Cereal, yogurt, snacks, and frozen meals led sales performance in the
quarter, while market index pricing on bakery flour was the primary contributor
to the net sales decline. Segment
operating profit increased 31 percent to $91 million, driven primarily by
increased grain merchandising earnings, favorable product mix, and benefits
from cost savings initiatives.
Through the first nine months of fiscal 2016,
Convenience Stores and Foodservice net sales declined 2 percent to $1.44
billion. Pound volume and unfavorable
net price realization each reduced net sales growth by 1 point.
Nine-month segment operating profit totaled
$273 million, 8 percent above year-ago results that grew 14 percent.
Joint Venture Summary
Combined after-tax earnings from the Cereal Partners
Worldwide (CPW) and Häagen-Dazs Japan (HDJ) joint ventures totaled $16 million
in the third quarter, up 24 percent.
Constant-currency after-tax earnings from joint ventures increased 19
percent, due primarily to volume growth for HDJ. Constant-currency net sales grew 22 percent
for HDJ and declined 1 percent for CPW. the first nine months of 2016, after-tax joint-venture earnings
totaled $65 million, down 2 percent as reported but up 8 percent in constant
Unallocated corporate items totaled $78 million net expense
in the third quarter of fiscal 2016, compared to $112 million net expense a
year earlier. Excluding mark-to-market
valuation effects, restructuring and project-related charges, Annie’s
integration expenses, and a $7 million foreign exchange loss in last year’s
third quarter related to balance sheet re-measurement for our Venezuelan
subsidiary, unallocated corporate items totaled $44 million net expense this
year compared to $32 million net expense a year ago.
Mills recorded restructuring, impairment and other exit costs totaling $17
million pretax during the third quarter compared to $49 million in the year-ago
period. An additional $17 million of
restructuring charges and $10 million of project-related charges were recorded
in cost of sales, compared to $22 million and $3 million, respectively, in last
year’s third quarter.
Net interest expense totaled $77 million in this year’s
third quarter, compared to $80 million a year ago.
The third-quarter effective tax rate was 31.0
percent, 5.5 percentage points higher than the prior year primarily due to less
favorable impacts of U.S. federal tax legislation passed in the fiscal third
quarter, and changes in earnings mix by country.
Excluding items affecting comparability, the
adjusted effective tax rate was 30.8 percent for the third quarter and 31.9
percent for the first nine months of 2016.
Cash Flow Items
Cash provided by operating activities totaled $1.86 billion
through the first nine months of 2016, up 19 percent from the prior year due
primarily to changes in working capital.
Capital investments through the first nine months totaled $478 million.
Dividends paid year-to-date increased 6
percent to $795 million. During the nine
months of 2016, General Mills repurchased 10.6 million shares of common stock
at an aggregate price of $602 million.
Average diluted shares outstanding through the first nine months totaled
612 million, down 1 percent from the average of 620 million in the year-ago
On March 16, 2016, subsequent to the close of the third
quarter, General Mills sold its General Mills de Venezuela CA subsidiary to a
third party and exited its business in Venezuela.
The company expects to incur a non-cash
charge of approximately $35 million pretax in the fourth quarter related to
this sale. The transaction is not
expected to have a material impact on the company’s ongoing financial results.
Powell said, “We anticipate the impact of the Green Giant
sale, continued foreign exchange headwinds, and the comparison to the year-ago
period that included an extra week will result in a reported decline in
fourth-quarter net sales, total segment operating profit, and adjusted diluted
EPS. However, on a comparable basis, we
expect our net sales growth to turn positive as our Consumer First efforts
continue to take hold. For the full
year, we are confident that we will deliver the growth goals we updated in
General Mills reaffirmed its 2016 full-year growth outlook,
which includes the impact of the Green Giant divestiture.
Net sales in constant currency are expected
to decline at a low single-digit rate from the 2015 levels that included a 53rd
week. Total segment operating profit is
expected to essentially match last year’s levels in constant currency.
Constant-currency adjusted diluted EPS is
expected to grow at a low single-digit rate from the base of $2.86 earned in
fiscal 2015. The company estimates an
8-cent headwind from currency translation in 2016.
General Mills will hold a briefing for investors today,
March 23, 2016, beginning at 8:30 a.m. Eastern time.
You may access the web cast here.
(analysts) Jeff Siemon: 763-764-2301
(media) Bridget Christenson: 763-764-6364
This press release contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 that
are based on our current expectations and assumptions. These forward-looking
statements, including the statements under the caption “Outlook,” and
statements made by Mr. Powell, are subject to certain risks and uncertainties
that could cause actual results to differ materially from the potential results
discussed in the forward-looking statements. In particular, our predictions
about future net sales and earnings could be affected by a variety of factors,
including: competitive dynamics in the consumer foods industry and the markets
for our products, including new product introductions, advertising activities,
pricing actions, and promotional activities of our competitors; economic
conditions, including changes in inflation rates, interest rates, tax rates, or
the availability of capital; product development and innovation; consumer
acceptance of new products and product improvements; consumer reaction to
pricing actions and changes in promotion levels; acquisitions or dispositions
of businesses or assets; changes in capital structure; changes in the legal and
regulatory environment, including labeling and advertising regulations and
litigation; impairments in the carrying value of goodwill, other intangible
assets, or other long-lived assets, or changes in the useful lives of other
intangible assets; changes in accounting standards and the impact of significant
accounting estimates; product quality and safety issues, including recalls and
product liability; changes in consumer demand for our products; effectiveness
of advertising, marketing, and promotional programs; changes in consumer
behavior, trends, and preferences, including weight loss trends; consumer
perception of health-related issues, including obesity; consolidation in the
retail environment; changes in purchasing and inventory levels of significant
customers; fluctuations in the cost and availability of supply chain resources,
including raw materials, packaging, and energy; disruptions or inefficiencies
in the supply chain; effectiveness of restructuring and cost savings
initiatives; volatility in the market value of derivatives used to manage price
risk for certain commodities; benefit plan expenses due to changes in plan
asset values and discount rates used to determine plan liabilities; failure or
breach of our information technology systems; foreign economic conditions,
including currency rate fluctuations; and political unrest in foreign markets
and economic uncertainty due to terrorism or war.
The company undertakes no obligation to
publicly revise any forward-looking statement to reflect any future events or